– Written by
Frank Davies
STORY LINK Pound to Dollar Forecast: GBP Falls Over 1% Following Burnham News
The Pound to Dollar exchange rate (GBP/USD) plunged over 1% late on Thursday as investors following the latest Burnham news.
Pound Sterling showed resilience despite growing speculation surrounding Prime Minister Keir Starmer’s future, while markets also monitored developments linked to President Donald Trump’s China visit and the evolving Middle East situation.
GBP/USD Forecasts: Below 1.35
The Pound to Dollar (GBP/USD) exchange rate has been held in tight ranges on Thursday and is trading just below 1.3500 after the New York open.
Sterling was still broadly resilient, but markets remained nervous.
Markets were continuing to monitor UK political intrigue and geo-political developments surrounding President Trump’s visit to China.
UoB commented; “While we maintain our negative GBP view, given that there has been no further increase in downward momentum, the odds of GBP dropping to 1.3455 have not increased by much.”
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According to Scotiabank; “Political risk remains elevated as market participants assess the ongoing prospect of a leadership challenge to PM Starmer, weighing on sentiment as the options market reveals a renewed demand for protection against downside risk.”
It added; “We look to a near-term range bound between 1.3450 and 1.3550.”
Domestically, Health Secretary Streeting has resigned from the government, but not formally launched a leadership campaign while first-quarter GDP data was stronger than expected.
Investec Chief Economist Philip Shaw commented; “The big question is that the markets want to know how does this leave the direction of fiscal policy. It certainly opens up a huge amount of uncertainty, but we honestly don’t know yet. At the moment, there are a lot of questions, not a whole lot of answers.”
MUFG commented; “Stronger UK cyclical momentum alongside higher UK yields and favourable conditions for carry trades have helped to the pound to surprisingly outperform so far during the Middle East conflict.”
It added; “However, downside risks for the pound have increased in the near-term in response to heightened political uncertainty in the UK.”
There have been no major developments surrounding Iran, but rhetoric from China will be watched closely.
ING commented; “A lack of progress in Gulf negotiations would argue for further USD gains, but much of the focus today and tomorrow will be on Trump’s visit to China.”
It added; “Ultimately, tangible progress would be required to push the dollar back to last week’s lows, but constructive headlines out of Beijing should be sufficient to keep a cap on the greenback for now.”
Federal Reserve policy and US yields will also be a significant element and potentially undermine the dollar. Yesterday, Fed Chair nominee Warsh secured an approval in the Senate.
MUFG commented; “With Kevin Warsh set to be in place at the next FOMC meeting on 17th June, market participants will be watching closely to see how he responds to the near-term pick-up in inflation. The US dollar could strengthen if there is any indication that the Fed’s tolerance for looking through higher inflation is diminishing.”
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TAGS: Pound Dollar Forecasts
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